Why mobile-only business models aren’t working

If you look at the relative traffic to the top 1,000 non-games in the iOS App Store, the results are frightening. The 10th most popular app (Skype) has a small fraction of the traffic seen by the top app (Facebook), and the 1,000th app (Pixable) has just 0.2%. Yet in the past four weeks, there were 45,000 new apps submitted to the iOS App Store. The chances that any of them will ever break into the top 1000 are effectively 0%, and even if they did, they’re still not seeing any amount of traffic to build a successful business.

Monetization is an even worse story: According to a study done by Activate, the top 20 app publishers, representing less than 0.005% of all apps, earn 60% of all app store revenue.

Why is the power law so harsh for the app ecosystem? By far the most challenging problem that developers face is app discovery. Paid promotion is completely unsustainable for most apps given that the cost for an active install increased to $4.14 in the last few months. In the app stores, the search function is unusable unless you know the name of the app you’re looking for, the home page is reserved for the select few with a relationship to Apple or Google, and the top charts are self-reinforcing.

Then, conversion to download the app is dramatically reduced by the fact that the app store page is incredibly limited in terms of display, and the user must be willing to give away their precious disk space to the app.